Coni.nrissioner

Huston Freeman Krevda

STATE OF INDIANA Ober Ziegner

INDIANA UTILITY REGULATORY COMMISSION

JOINT PETITION OF INDIANA AMERICAN ) WATER COMP ANY INC. ("INDIANA ) AMERICAN") AND THE TOWN OF RILEY, ) INDIANA ("RILEY") FOR APPROVAL AND ) AUTHORIZATION OF: (A) THE ACQIDSITION BY ) INDIANA AMERICAN OF RILEY'S SEWER ) UTILITY PROPERTIES (THE "RILEY SYSTEM") ) IN VIGO COUNTY, INDIANA IN ACCORDANCE ) WITH A PURCHASE AGREEMENT THEREFOR; ) (B) APPROVAL OF ACCOUNTING AND RATE ) CAUSE NO. 45290 BASE TREATMENT; (C) APPROVAL OF THE )

Yes No

✓

v ✓ ✓ ✓

RATES AND CHARGES FOR SEWER SERVICE IN ) THE AREA SERVED BY THE RILEY ) APPROVED: MAR 3 1 2020 OPERATION; (D) APPROVAL OF APPLICATION ) OF INDIANA AMERICAN'S MUNCIE SEWER ) RULES AND REGULATIONS TO THE RILEY ) SEWER SYSTEM WITH CHANGES TO ADDRESS ) PRORATION OF PARTIAL UTILITY PAYMENTS; ) (E) APPLICATION OF INDIANA AMERICAN'S ) DEPRECIATION ACCRUAL RATES TO SUCH ) ACQIDRED PROPERTIES; AND (F) THE ) SUBJECTION OF THE ACQIDRED PROPERTIES ) TO THE LIEN OF INDIANA-AMERICAN'S ) MORTGAGE INDENTURE. )

ORDER OF THE COMMISSION

Presiding Officers: Stefanie N. Krevda, Commissioner Jennifer L. Schuster, Administrative Law Judge

On September 9, 2019, Indiana American Water Company, Inc. ("Indiana American") and the Town of Riley, Indiana ("Riley") (collectively, "Joint Petitioners") filed their Joint Petition seeking certain approvals relating to the proposed acquisition by Indiana American of the assets comprising the wastewater system owned by Riley (the "Riley System") and their case-in-chief. On December 5, 2019, the Office of Utility Consumer Counselor ("OUCC") filed its case-in-chief, and Joint Petitioners filed their rebuttal testimony and attachments on December 18, 2019.

The Indiana Utility Regulatory Commission ("Commission") held an evidentiary hearing in this Cause at 9:30 a.m. on January 17, 2020 in Room 222 of the PNC Center, 101 West Washington Street, Indianapolis, Indiana. Joint Petitioners and the OUCC appeared and participated in the hearing. The hearing was continued to February 11, 2020 at 9 a.m. in Room 224

Not Participating

of the PNC Center, 101 West Washington Street, Indianapolis, Indiana in order to receive evidence on Indiana American's request for a Certificate of Territorial Authority ("CTA'').

Based upon the applicable law and evidence, the Commission now finds:

1. Notice and Jurisdiction. Due, legal, and timely notice of the evidentiary hearing in this Cause was given by the Commission as required by law. Indiana American is a public utility as defined by Ind. Code § 8-1-2-1. The Riley System is a municipally owned utility as defined by Ind. Code§ 8-1.5-1-10 for the purposes oflnd. Code§§ 8-1.5-2-4 through 8-1.5-2-6.1. Pursuant to Ind. Code ch. 8-1-30.3 and Ind. Code§ 8-1.5-2-6.1, the Commission has jurisdiction over the proposed sale of a municipally owned utility and therefore has jurisdiction over Joint Petitioners and the subject matter of this proceeding. Pursuant to Ind. Code § 8-1-2-89, the Commission has jurisdiction over a public utility's rendering of wastewater utility service in rural areas in the state of Indiana. Therefore, the Commission has jurisdiction over Petitioner and the subject matter of this proceeding.

2. Joint Petitioners' Characteristics. Indiana American is a public utility incorporated under the laws of the state of Indiana, with its principal office and place of business at 153 North Emerson Avenue, Greenwood, Indiana. Indiana American provides water and wastewater utility service to the public in various locations in Indiana, including Vigo County. Indiana American owns, operates, manages, and controls plant, property, equipment, and facilities for the production, treatment, transmission, distribution, and sale of water in Indiana.

Riley is a municipality located in Vigo County, Indiana. Riley owns and operates a municipal wastewater system and serves approximately 430 customers. Indiana American previously acquired Riley's water utility system pursuant to the Commission's orders in Cause No. 43855 and 44161. The Riley System is located near Indiana American's existing Wabash Valley Operations in Vigo County. The Riley System is a municipal wastewater utility and therefore is not considered a "utility" for purposes oflnd. Code § 8-1-2-1, but is a "utility" and "municipally owned utility" for the purposes oflnd. Code§§ 8-1.5-2-4 through 8-1.5-2-6.1.

3. following:

Relief Requested. Joint Petitioners have requested that the Commission do the

• Grant such approvals as may be necessary to consummate the acquisition of the Riley System by Indiana American on the terms described in the Joint Petition and the asset purchase agreement between Indiana American and Riley (Attachment DAB-2) ("Asset Purchase Agreement");

• Authorize Indiana American to record, for ratemaking purposes, as the net original cost rate base of the assets being acquired, an amount equal to the full purchase price, incidental expenses, and other costs of acquisition, allocated among utility plant in service accounts as proposed in Joint Petitioners' evidence;

• Authorize Indiana American to apply the rules and regulations applicable to its existing wastewater customers in and adjacent to Delaware County, Indiana (Muncie Sewer, formerly Farmington), with changes to address partial utility

2

payments, to customers to be served by Indiana American as a result of this acquisition;

• Approve the adoption of Riley's wastewater rates and charges adopted by the Riley Town Council ("Town Council") as of the closing by Indiana American as reflected in the tariff sheet sponsored by Indiana American witness Gregory Shimansky (Attachment GDS-2);

• Authorize Indiana American to apply its existing depreciation accrual rates to the Riley System;

• Approve the encumbrance of the properties comprising the Riley System with the lien of Indiana American's mortgage indenture; and

• Approve Indiana American's requested CTA.

4. Joint Petitioners' Direct Evidence. Joint Petitioners presented direct testimony from Clay White, President of the Riley Town Board ("Town Board"); Douglas Brock, Vice President of Operations for American Water Works Service Company, Inc. ("Service Company"); Gregory Shimansky, Director of Rates and Regulatory for Service Company; and Ezat Nayeri, Engineering Manager for Indiana American.

A. Acquisition Background. Mr. Brock described how Indiana American's acquisition of the Riley System complied with Ind. Code§ 8-1.5-2-6.1. He explained that, under this statute, an "offered utility" is too small to capture economies of scale or is not furnishing or maintaining adequate, efficient, safe, and reasonable service and facilities if the Commission finds that any of the six conditions listed in Ind. Code § 8-1-30.3-6 exist. Because the Riley System serves fewer than 5,000 customers, it satisfies this requirement. Riley also satisfies other requirements of this section, as it has violated one or more regulatory requirements and has received multiple notices of violation from the Indiana Department of Environmental Management ("IDEM"); it is unable to furnish and maintain adequate service to its customers at rates equal to or less than Indiana American's wastewater rates due to necessary improvements to the plant and system that it does not believe it can afford; and it lacks the adequate technical ability and expertise to manage its system.

Mr. Brock also described how the proposed acquisition satisfies each of the requirements for acquisition of an "offered utility" under Ind. Code § 8-1-30.3-5. He stated that Indiana American can provide the financial, managerial, and technical ability and expertise required to adequately run the Riley System in a way that Riley cannot. Benefits of the acquisition include access to Indiana American's licensed wastewater operators, inclusion in Indiana American's prioritization model and asset management program, access to professional staff to keep and maintain its books and records, the ability to leverage Indiana American's purchasing and contracting expertise, access to Indiana American's testing and research resources, and access to Indiana American's technology and information systems.

Mr. Brock testified that Indiana American has complied with the requirements oflnd. Code § 8-l-30.3-5(e) by providing notice to Indiana American's customers and the OUCC and a

3

statement of known infrastructure, environmental, or other issues affecting the offered utility and the process for determining reasonable and prudent improvements upon completing the acquisition.

Mr. Nayeri testified about the issues facing the Riley System that have rendered it unable to furnish or maintain adequate, efficient, safe, and reasonable service and facilities. The Riley System has had multiple environmental compliance violations, including excessive infiltration and inflow ("I&I") in its system, leading to a number of effluent violations. The Riley System has also experienced at least one recent sanitary sewer overflow ("SSO"). According to IDEM's environmental compliance review, Riley's facilities appear to be at a serious risk of deterioration. Mr. Nayeri testified that, after closing, Indiana American will consider potential system improvements by first reviewing any previously completed evaluations and studies and then conducting additional system evaluations, including I&I evaluation via smoke testing and flow monitoring and evaluation of hydraulic and biological loading capacity of the treatment plant.

B. Proposed Acquisition and Asset Purchase Agreement. Mr. White explained that the operation of the utility is controlled by the Town Board and testified that the Town Board does not have the time, technical expertise, or resources to manage a wastewater utility, especially given increasing environmental regulation. He testified that Riley does not have the financial resources to continue operating the utility and cannot attract capital to finance the necessary improvements to upgrade the system. Riley has also struggled to maintain a certified operator and, at best, can only maintain a part-time operator, thus leaving the community without 24/7 staffed operations. Mr. White stated that Riley residents deserve a level of service quality that the Town Board cannot provide. These considerations led the Town Board to evaluate the possibility of selling Riley's wastewater utility to Indiana American. Mr. White testified that Riley and Indiana American began conducting arms-length negotiations in March 2017 which resulted in the Asset Purchase Agreement being finalized and signed on February 4, 2019.

Mr. White testified that Riley followed the statutorily required appraisal process to sell its wastewater assets. On March 6, 2017, the Town Board voted to appoint three appraisers to evaluate the Riley System. Riley received the land appraisal on May 2, 2017, but, due to the inadequacy of Riley's records, the appraisal of the sewer facilities was delayed until July 9, 2018. Mr. White sponsored the appraisals as Attachment CGW-1. He testified that the statutorily required public hearing was held on September 26, 2018. On November 5, 2018, the Town Council formally voted to sell the sewer system to Indiana American. Mr. White explained that Riley agreed to a purchase price of less than the appraised value to lower the sewer rates charged by Indiana American. According to Mr. White, Riley only recently realized it needed to adopt an ordinance to froalize the sale, and the Town Council enacted that ordinance on September 6, 2019 (Attachment CGW-2).

Mr. White testified that Riley held several Town Board meetings to determine public opinion and receive input from residents regarding the proposed sale. He testified that Indiana American officials attended these meetings to allow customers an opportunity to get answers directly from Indiana American. These meetings indicated that Riley residents were generally in favor of the sale of the Riley System to Indiana American.

4

Mr. Brock sponsored the Asset Purchase Agreement (Attachment DAB-2) and testified that Indiana American proposes to acquire all of the property described in Riley's appraisals (Attachment CGW-1) at a purchase price of$1,545,000, which is less than the property's appraised value. Mr. Brock also testified about the significant terms and conditions of the Asset Purchase Agreement, including the requirement that Riley institute a wastewater rate increase of 15% at or before closing. He stated that consummation of the transaction is conditioned on obtaining certain approvals from the Commission, including recognition of the full purchase price plus transaction costs in net original cost rate base and the application of Indiana American's depreciation accrual rates to the assets being acquired.

C. Accounting and Ratemaking Treatment. Mr. Shimansky testified that Indiana American is proposing to record the net original cost of the Riley System to include the purchase price of $1,545,000, along with incidental expenses and other costs of $165,000 in the manner reflected in the proposed journal entry shown on Attachment GDS-1. The statute requires the Commission to authorize Indiana American to make accounting entries recording the acquisition that reflect the full purchase price, incidental expenses, and other costs of acquisition as the original cost of the utility plant in service assets being acquired, allocated in a reasonable manner among appropriate utility plant in service accounts. Ind. Code § 8-1-30.3-S(f). Mr. Shimansky also testified that the purchase price includes a cost differential as defined in Ind. Code § 8-1-30.3-S(c). He explained that a cost differential will exist in all transactions where the purchase price is derived from something other than original costs.

Mr. Shimansky testified that Riley has agreed to adopt a 15% rate increase at or before closing, and Indiana American has agreed to keep the Riley customers on that increased wastewater rate for now. Based on this increase, a Riley wastewater residential customer consuming 4,000 gallons of water per month can·expect to pay approximately $67.61 per month for wastewater service. Mr. Shimansky testified that this agreement will require a change to Indiana American's wastewater tariff and sponsored the revised tariff as Attachment GDS-2 to his testimony. Mr. Shimansky testified that the rates charged by Indiana American to its existing customers will not increase umeasonably in future general rate cases solely as a result of acquiring the Riley System. Under Ind. Code§ 8-l-30.3-5(d)(7), rates and charges are deemed reasonable if the net original cost proposed to be recorded is not greater than two percent of the acquiring utility's net original cost rate base as determined in its most recent general rate case. Mr. Shimansky testified that the purchase price of the Riley System is less than 0.2% of the amount of Indiana American's most recently determined net original cost rate base ($1,182,170,152).

D. Rules and Regulations. Mr. Brock testified that Indiana American is proposing that the current Rules and Regulations Applicable to Sewer Service in and Adjacent to Delaware County, Indiana (Muncie Sewer, formerly Farmington) (IURC No. S-12-D, dated December 12, 1997) ("Muncie Rules") apply to sewer service to customers of the Riley System, with one modification. Indiana American has proposed adding a provision for prorating partial payments with respect to water and wastewater service except where a customer has followed Indiana American's existing complaint process as set forth in Rule 4.2( d) of its Rules and Regulations Applicable to Water Service (IURC W-15, dated March 30, 2015). Attachment DAB-6 contains the proposed rules applicable to wastewater service for customers of the Riley System.

5

Mr. Brock opined that this provision is necessary because, as a private entity, Indiana American does not have the same ability as a municipality to disconnect a customer's water for non-payment of the customer's wastewater bill. He testified that, without the proration provision, a customer could request that partial payments be applied to water only and delay or avoid the consequences of non-payment for sewer service, because Indiana American's recourse for non­payment of sewer service is physical disconnection of the customer's sewer line - a far more costly remedy. Under the proposed modification, if a customer refuses to pay the sewer bill, the unpaid amount will be allocated to both the water bill and sewer bill, leading to service termination for the failure to pay in full the water bill if the customer continues to delay. Mr. Brock explained that if a customer legitimately contests the bill for sewer service, the proposed rule modification provides that the customer may invoke the process set forth in Rule 4.2( d) of Indiana American's Rules and Regulations Applicable to Water Service.

5. OUCC's Evidence. Kristen Willoughby, Utility Analyst in the OUCC's Water/Wastewater Division, testified about the environmental compliance issues that the Riley System has faced since 2009. Even though Riley has completed some capital improvement projects, its system is still not in compliance. Ms. Willoughby testified that, as a·large investor­owned utility, Indiana American has the technical, managerial, and financial capability to evaluate the Riley System and bring it into compliance. She recommended that, if the Commission approves the acquisition,the Commission require Indiana American to comply with Riley's existing IDEM agreed order or work with IDEM to modify the agreed order to bring the utility into compliance.

Margaret Stull, Chief Technical Advisor in the OUCC's Water/Wastewater Division, testified that the purchase price , identified in the Indiana American witnesses' testimony is $1,545,000, while the purchase price identified in Mr. White's testimony is $1,453,373.32. Ms. Stull testified that any appraisal costs are not incidental costs of the purchaser, Indiana American, but rather are costs that would normally be borne by the seller and which Indiana American agreed to pay. She recommended that the Commission allow Indiana American to include any appraisal costs incurred as additional compensation for the assets and not as an incidental expense or other costs of acquisition. She also recommended that the Commission allow Indiana American to record in rate base the cost differential at the amount it proposed in its case-in-chief.

Ms. Stull agreed that the Commission should approve the rate Indiana American proposed to charge the former Riley customers, but not for the reasons asserted by Joint Petitioners. Ms. Stull disagreed that the rates Indiana American will charge its acquired customers should be established as a matter of agreement between Indiana American and Riley. She noted that Riley agreed to establish a 15% rate increase that Indiana American would be permitted to charge prospectively. She stated that it was unclear whether Riley itself would ever charge its customers that rate. In some cases, customers of an acquired utility will be charged the acquiring utility's authorized rates, and, in other cases, they will pay the same rates they had been paying the selling utility. However, Ms. Stull noted that it is unusual for a municipality to establish the rate of a public utility subject to the Commission's rate jurisdiction. She opined that it would be better for the Commission to approve the rates Indiana American will charge the Riley customers if it is appropriately cost based.

Despite these reservations, Ms. Stull testified that the 15% rate increase proposed by Joint Petitioners is a middle ground between Riley's current rate and Indiana American's current rate,

6

and the increase will help transition the Riley customers to the higher rates they will eventually pay. She recommended that the proposed rate be approved. However, she also requested that the Commission reject the tariff proposed by Indiana American for the 15% rate increase and instead approve the tariff rates listed in Table MAS-1 of her testimony, which were based on an assumption that one of the three rates reflected on the tariff proposed by Indiana American was actually reflecting the 15% rate increase contemplated in the Asset Purchase Agreement.

Ms. Stull recommended that the Commission reject the proposed changes to the rules and regulations applicable to the Riley wastewater customers allowing Indiana American to prorate partial payments. Ms. Stull testified that Joint Petitioners provided no evidence there is a problem with non-payment of sewer utility bills by Riley customers to warrant this restriction on a customer's ability to direct their partial payments. She testified that customers should have the ability to direct their payments when necessary to ensure continued access to potable water.

Ms. Stull also recommended that the Commission reject Indiana American's proposed tariff language regarding unmetered residential customers or residential customers with inaccurate meter readings. Ms. Stull testified that the language is problematic because it purports to impose penalties on one class of customer without any rational or stated basis for doing so, and it is unclear what the phrase "average treatment rate of a single family dwelling unit" means, among other reasons. Ms. Stull also testified that the volumetric rate for treatment per 1,000 gallons is inaccurately labeled as "Operation, Maintenance & Repair Charge" and recommended that this issue be corrected.

6. Joint Petitioners' Rebuttal Testimony. Regarding the apparent discrepancy between the purchase prices identified in Indiana American's testimony and Riley's testimony, Mr. Shimansky testified on rebuttal that the agreed-upon purchase price in the Asset Purchase Agreement is $1,545,000. The amount of $1,453,373.32 appears only in the minutes of Riley's September 26, 2018 Town Council meeting, which was held before the Asset Purchase Agreement was signed in February 2019.

Mr. Shimansky opined that the rates in the Asset Purchase Agreement, including the 15% rate increase, are subject to Commission approval in this Cause. He testified that he disagreed with the calculation of the rates as proposed by the OUCC and with the rate schedule proposed by Ms. Stull that only includes a base charge and a treatment charge. Mr. Shimansky testified that the rates in Indiana American's proposed tariff are Riley's existing rates, both fixed and volumetric, increased by 15%, and no other changes have been made to Riley's tariff, including to the language. Mr. Shimansky provided a table of the proposed rates with the 15% increase applied.

Mr. Shimansky testified that Ms. Stull's other proposed changes to the tariff, involving the incorrect heading of the section related to volumetric rate for treatment of 1,000 gallons and the section regarding unmetered residential customers and residential customers with inaccurate meter readings, were acceptable to Indiana American.

Mr. Shimansky also stated that he disagreed with Ms. Stull's opposition to the proration language and noted that the language already exists in Indiana American's rules applicable to Sheridan. He opined that the language is necessary, as there is no inexpensive means of enforcing customers' payment obligation with wastewater service, and, without this rule, Indiana American

7

will need to recover its higher costs of collection from its other customers. He reiterated that the proration requirement will only apply to undisputed bills.

7. Commission Discussion and Findings.

A. Applicability of Statute. For Ind. Code § 8-1-30.3-5 to apply to the acquisition of a water or wastewater utility, two criteria must be met: first, the utility is being acquired in a transaction involving a willing buyer and willing seller; and, second, one of the two utility companies must be subject to Commission jurisdiction. We find that both of these conditions are satisfied in this case. Indiana American is a public utility subject to our jurisdiction, and no party has disputed the fact that this transaction involves a willing buyer and a willing seller.

B. Sale Approval and Public Interest. The proposed sale is considered to be in the public interest if it meets the requirements of Ind. Code § 8-l-30.3-5(d), which are the following:

(1) The utility property is used and useful to the offered utility in providing water service, wastewater service, or both water and wastewater service.

(2) The offered utility is too small to capture economies of scale or has failed to furnish or maintain adequate, efficient, safe, and reasonable service and facilities.

(3) The utility company will improve economies of scale or, if otherwise needed, make reasonable and prudent improvements to the offered utility's plant, the offered utility's operations, or both, so that customers of the offered utility will receive adequate, efficient, safe, and reasonable service.

( 4) The acquisition of the utility property is the result of a mutual agreement made at arms length.

(5) The actual purchase price of the utility property is reasonable. ( 6) The utility company and the offered utility are not affiliated and share no

ownership interests. (7) The rates charged by the utility company will not increase unreasonably in

future general rate cases solely as a result of acquiring the utility property from the offered utility ...

(8) The cost differential will be added to the utility company's rate base to be amortized as an addition to expense over a reasonable time with corresponding reductions in the rate base.

Our analysis of each requirement is below.

i. Used and Useful Property. Mr. Nayeri testified that the utility property is used and useful to Riley, as it is currently operating the system and using the property to provide wastewater service to its customers. No party disputed this, and, therefore, we find that this requirement is met.

ii. Offered Utility Too Small to Capture Economies of Scale. Mr. Brock testified that the Riley System serves fewer than 5,000 customers, which is one of the findings the Commission may make under Ind. Code § 8-1-30.3-6 to demonstrate that the offered

8

utility is too small to capture economies of scale. He also testified that, while not necessary to satisfy additional conditions, the Riley System meets several other criteria listed in Ind. Code § 8-1-30 .3-6. After considering the evidence of record, we find that, pursuant to Ind. Code § 8-1-30.3-6(5), the Riley System "is too small to capture economies of scale or is not furnishing or maintaining adequate, efficient, safe and reasonable service and facilities."

m. Purchaser Will Improve Economies of Scale. Mr. Brock testified about how Indiana American's ownership of the Riley System will improve economies of scale and provided a number of examples to support his testimony. He also testified that Indiana American has the financial, managerial, and technical ability and expertise required to adequately run the Riley System. The Town Board is not in the utility business and therefore cannot bring to bear the same level of commitment, expertise, and knowledge that Indiana American can. Mr. Nayeri described how Indiana American will determine what improvements Indiana American will make upon closing. We find that the evidence of record demonstrates that Indiana American will improve economies of scale of the Riley System and will make reasonable and prudent improvements to the offered utility's plant and operations if needed.

iv. Arms-Length Negotiations. Mr. White and Mr. Brock both testified that the Asset Purchase Agreement was the result of arms-length negotiations between Riley and Indiana American. Thus, we find that this requirement is met.

v. Reasonable Price. Both Mr. Brock and Mr. White testified that the purchase price for the Riley System is less than its appraised value, and, therefore, we find that it is reasonable pursuant to Ind. Code§ 8-1.5-2-6.l(e).

vi. Buyer and Seller Are Unaffiliated. Based on Mr. Brock's undisputed testimony, Riley and Indiana American are not affiliated and share no ownership interests, and, therefore, this requirement is met.

vii. Rates Will Not Increase Unreasonably. In Indiana American's most recent general rate case (Cause No. 45142), the net original cost rate base was determined to be $1,182,170,152. Mr. Shimansky testified that the purchase price of the Riley System is less than 0.2% of that amount. Therefore, we find that the rates charged by Indiana American will not increase unreasonably as a result of this acquisition.

vm. Cost Differential Amortization. Mr. Shimansky testified that his proposed journal entry allocates the entire purchase price reasonably among utility plant in service accounts. Thus, the cost differential will be amortized and charged to expense over a reasonable period of time through depreciation expense. We have approved this approach in previous cases, and we find it to be appropriate here as well.

ix. Conclusion. Because we find that the evidence of record demonstrates that all of the requirements oflnd. Code§ 8-1.5-2-6.l(e) have been met, we find that the proposed sale of the Riley System to Indiana American through the Asset Purchase Agreement is in the public interest.

9

C. Ind. Code § 8-1-30.3-S(e) Requirements. Under Ind. Code § 8-l-30.3-5(e), Indiana American, as the acquiring utility, is required to provide the following:

(1) Notice to customers of the acquiring utility company that a petition has been filed with the commission under this chapter. The notice provided under this subdivision must include the cause number assigned to the petition. Notice under this subdivision may be provided to customers in a billing insert.

(2) Notice to the office of the utility consumer counselor.

(3) A statement of known infrastructure, environmental, or other issues affecting the offered utility, and the process for determining reasonable and prudent improvements upon completing the acquisition.

Based on the evidence of record, we find that Indiana American has satisfied all three of these requirements. Mr. Shimansky provided evidence of the notice given by Indiana American to its customers, which was both printed on bills (including the cause number) and included in a bill insert. Notice was provided to the OUCC through the service of the Petition and the Joint Petitioners' case-in-chief. Finally, Mr. Nayeri testified about known issues currently impacting the Riley System and explained the process Indiana American will undertake after closing to determine what improvements need to be made to the system.

D. Sale Approval and Accounting Treatment. Because we have determined that Joint Petitioners have satisfied all of the requirements listed in Ind. Code§ 8-1-30.3-5(d), we find, pursuant to Ind. Code § 8-1.5-2-6.1, that the proposed acquisition of the Riley System by Indiana American is in the public interest and is therefore approved. Thus, the provisions of Ind. Code § 8-1.5-2-6.1 (f) apply to Indiana American:

As part of an order approving a sale or disposition of property under this section, the commission shall, without regard to amounts that may be recorded on the books and records of the municipality and without regard to any grants or contributions previously received by the municipality, provide that for ratemaking purposes, the prospective purchaser shall record as the net original cost rate base an amount equal to:

(1) the full purchase price; (2) incidental expenses; and (3) other costs of acquisition;

allocated in a reasonable manner among appropriate utility plant in service accounts.

The amount that Indiana American seeks to record in net original cost rate base is equal to the purchase price of$1,545,000 plus approximately $165,000 (incidental expenses and other costs of acquisition) for a total original cost rate base of approximately $1,710,000, as set forth in Joint Petitioners' Attachment GDS-1. Ms. Stull testified that she agreed the $165,000 of proposed costs of acquisition should be included in rate base, but only to the extent the $165,000 does not include

10

the costs of appraisals prepared for Riley at its direction. On rebuttal, Mr. Shimansky testified that appraisal costs are not included in the $165,000 estimate. He also testified that the purchase price for the acquisition includes a "cost differential" as that term is defined in Ind. Code § 8-l-30.3-5(c), and no party disputed that statement.

We therefore find that Indiana American may record, for ratemaking purposes, as the net original cost rate base of the assets being acquired, an amount equal to the purchase price, incidental expenses, and other costs of acquisition, allocated among utility plant in service accounts as proposed by Indiana American, pursuant to Ind. Code§ 8-1.5-2-6.l(f). We therefore approve Indiana American's proposed accounting and journal entries as described in Mr. Shimansky' s direct testimony and Attachment GDS-1 and find that the costs reflected on the books and records of Indiana American shall be used as the original cost of such properties for accounting, depreciation, and rate base valuation purposes. As proposed by Ms. Stull, the journal entry should be adjusted to reflect actual (rather than estimated) incidental expenses and other costs of acquisition. We find that Indiana American's existing depreciation accrual rates approved by the Commission in Cause No. 44992 on May 30, 2018 and as included in the calculation of rates with the Order in Cause No. 45142 dated June 26, 2019 should be applied on and after the closing date of the acquisition to depreciable property purchased from Riley pursuant to the Asset Purchase Agreement.

E. Rates and Rules.

i. 15% Rate Increase. Ms. Stull expressed concern that Riley (rather than the Commission) is setting rates to be charged by a Commission-regulated utility, Indiana American, through the 15% rate increase for Riley customers included in the Asset Purchase Agreement. Despite this, she agreed that the rates Indiana American proposes to charge are appropriate and opined that the Commission should authorize them. She indicated that the proposed rates will help transition Riley's former customers to the higher rates they will eventually pay as customers of Indiana American.

On rebuttal, Mr. Shimansky stated that, when an acquisition will result in a rate increase for a municipality's customers, Indiana American sometimes requires the municipality to increase their rates so there is greater assurance that the local community understands the effect of the transaction. He also testified that the 15% rate increase is part of the Asset Purchase Agreement which the Commission has authority to review and approve in this Cause, and, therefore, the Commission does have authority to approve or deny the 15% rate increase.

The OUCC also disagreed with Indiana American's proposed rate tariff in this Cause, with Ms. Stull taking the position that each base monthly charge and the volumetric charge should be increased by 15%. She also recommended removal of the first of two fixed charges under the assumption that the fixed charge represents the 15% rate increase. Ms. Stull also presented her own proposed rate schedule in Table MAS-1.

On rebuttal, Mr. Shimansky testified that he disagreed with Ms. Stull and that the rates Indiana American proposed are Riley's existing rates, both fixed and volumetric, increased by 15%. He stated that, iflndiana American removes the first fixed charge as proposed by the OUCC, it will not be collecting the current Riley rates pursuant to the Asset Purchase Agreement.

11

After reviewing the evidence of record, we find that we do not need to separately approve the 15% rate increase included in the Asset Purchase Agreement, as we approved the terms and conditions of the Asset Purchase Agreement pursuant to the requirements of Ind. Code §§ 8-1-30.3-5 and 8-1.5-2-6.1, as discussed above. We also find that the OUCC's proposed changes to Indiana American's rate tariff are unnecessary and therefore approve Indiana American's proposed rate tariff.

ii. Proration of Partial Payments. The OUCC also objects to Indiana American's proposal to prorate a user's partial payments for water and wastewater service except where a customer has followed Indiana American's existing complaint process as set forth in Rule 4.2(d) of its Rules and Regulations Applicable to Water Service. Mr. Brock testified that the proration language is necessary because Indiana American, as a private entity, cannot disconnect a customer's water for non-payment of the customer's sewer bill.

In response, Ms. Stull noted that Joint Petitioners did not provide evidence that there is a problem with non-payment of sewer utility bills by Riley customers and asserted that customers should have the ability to direct their payments when necessary to ensure continued access to potable water.

On rebuttal, Mr. Shimansky testified that this language already exists in Indiana American's rules applicable to Sheridan and reiterated that the proration requirement will only apply to undisputed bills. According to Mr. Shimansky, Indiana American will need to recover its higher costs of collection from all other customers without this rule. He opined that, under Ms. Stull' s approach, a customer could refuse to pay an undisputed wastewater bill up until the point where Indiana American is ready to make a physical disconnection and then pay the arrearage or simply move away.

Unlike municipal utilities, private entities do not have the ability to force or make arrangements for the disconnection of water service for failure to pay a sewer bill. See 170 IAC 6-1-16( c). The proration process will only apply to undisputed bills - thus, if a customer disputes payment of a wastewater bill, the customer's payments will not be prorated. Indiana American currently uses this rule in Sheridan, and there was no evidence presented indicating any problems with the application of this rule there. Further, we agree that Indiana American should not have to recover the costs of collection from all customers when specific customers are the direct cause of those higher costs.

For these reasons, we find that Indiana American's rules and regulations for wastewater service applicable to its existing wastewater customers in and adjacent to Delaware County, Indiana (Muncie Sewer, formerly Farmington) shall apply to the Riley System, with the modification to permit Indiana American to prorate a user's partial payments for water and wastewater service except where a customer has followed Indiana American's existing complaint process as set forth in Rule 4.2(d) of its Rules and Regulations Applicable To Water Service, as described herein.

F. Encumbrances. We approve the encumbrance of the properties comprising the Riley System by subjecting such properties to the lien of Indiana American's general mortgage as of the closing.

12

G. Certificate of Territorial Authority. Indiana American also requests that the Commission issue a CTA for it to serve the unincorporated areas within which it intends to provide service as part of its acquisition of the Riley System. Indiana American provided a legal description and map for this area, as well as evidence that it has notified other sewer service providers in the area of the request for a CTA allowing it to continue to serve this small area. Indiana American provided the following legal description of the area for which it is seeking a CTA:

W 1/2, S15, TllN, R8W S16, TllN, R8W N 1/2, S21, Tl lN, R8W NW 1/4, S22, Tl lN, R8W

No party has objected to the requested CTA. We find that Indiana American has shown itself to have the lawful power and authority to apply for the CTA and to provide the proposed service in the area, as well as the financial ability to provide said proposed service to the area. Further, we find that public convenience and necessity requires Indiana American's continued service in this area.

We also find that Indiana American has complied with the applicable requirements of 170 IAC 8.5-3-1(2). Indiana American provided information satisfying the requirements of 170 IAC 8.5-3-1 (2)(D) as part of its case-in-chief in this Cause. 170 IAC 8.5-3-1 (2)(G), requesting a statement of the estimated costs of the construction of the sewage disposal plant, is not applicable here.

However, the legal description provided by Indiana American does not exclude the Town of Riley. The applicable statute provides as follows:

No sewage disposal company shall commence the rendering of sewage disposal service in any rural area in Indiana in which it is not actually rendering sewage disposal service, without first obtaining from the commission a certificate of territorial authority authorizing such sewage disposal service, finding that public convenience and necessity require such sewage disposal service within such rural area by such sewage disposal company, and defining and limiting specifically the rural area covered by the certificate.

Ind. Code § 8-l-2-89(c) (emphasis added). We also note that the area described by the legal description is a significantly larger area than the area outside Riley's corporate limits that is currently being served by the Riley System. Thus, we find that Indiana American shall provide an updated legal description of the area to be served in a compliance filing with the Commission's Water/Wastewater Division within 30 days of the date of this Order. We find Indiana American shall also provide an electronic map that defines the revised boundaries of the CTA's territory in shapefile, geodatabase, or mxd format in a definable coordinate system with the Commission's Water and Wastewater Division within 30 days of the date of this Order. Subject to this condition, we find that a CTA to provide wastewater service in the unincorporated, rural area outside the

13

Riley corporate boundaries to be identified by Indiana American in this compliance filing should be granted to Indiana American.

IT IS THEREFORE ORDERED BY THE INDIANA UTILITY REGULATORY COMMISSION that:

1. Joint Petitioners are authorized to consummate the acquisition of the Riley System by Indiana American on the terms described in the Asset Purchase Agreement and in the evidence as discussed herein.

2. The acquisition of the Riley System by Indiana American on the terms and conditions described in the Asset Purchase Agreement and in the evidence herein is in the public interest as defined in Ind. Code§ 8-1.5-2-6.l(e).

3. Indiana American may record, for ratemaking purposes, as net original cost rate base of the assets being acquired, an amount equal to $1,545,000, plus actual incidental expenses, and other costs of acquisition, allocated among utility plant in service accounts, as proposed by Joint Petitioners in Attachment GDS-1.

4. Indiana American is authorized to charge customers currently served by the Riley System the rates and charges as the same have been adopted by the Town Council as of the closing date. Prior to placing these wastewater rates into effect, Indiana American shall file with the Water/Wastewater Division of the Commission its revised Schedule of Charges for Sewer Service (IURC No. S-22-A) reflecting the metered wastewater rates authorized herein.

5. Indiana American is authorized to apply the rules and regulations for wastewater service applicable to Indiana American's Muncie Sewer Operation to the Riley System. Prior to placing into effect the rules and regulations for wastewater service for the customers of the Riley System, Indiana American shall file with the Water/Wastewater Division of the Commission its proposed rules, as presented in Attachment DAB-6, with modifications as indicated in this order.

6. Indiana American is authorized to reflect the acquisition of the Riley System on its books and records as of the closing date by making the accounting and journal entries described in Attachment GDS-1, as adjusted for actual incidental expenses and costs of the acquisition.

7. The net original cost of the acquired property, as defined herein, shall be used for accounting, depreciation, and rate base valuation purposes after closing.

8. Indiana American is authorized to apply its depreciation accrual rates on and after the closing date of the acquisition to depreciable property purchased from Riley pursuant to the Asset Purchase Agreement.

9. Indiana American is authorized to encumber the properties comprising the Riley System with the lien of Indiana American's mortgage indenture.

10. Indiana American is granted a certificate of territorial authority to provide sewage disposal in an unincorporated area to be defined in a compliance filing with the Commission's Water/Wastewater Division to be made within 30 days of the date of this Order, as described

14

further herein. This Order and Indiana American's compliance filing shall be the sole evidence of the grant of such certificate of territorial authority.

11. This Order shall be effective on and after the date of its approval.

HUSTON, FREEMAN, KREVDA, OBER, AND ZIEGNER CONCUR:

APPROVED: MAR 31 2020

I hereby certify that the above is a true and correct copy of the Order as approved.

15